Who should pay for property damage caused by extreme weather?
by Kate Mackenzie, The Climate Institute 14 June 2016
Kate Mackenzie
It's not just the owners of Collaroy mansions teetering on the edge of the shore who might find themselves having to foot the bill for damage to their properties from the latest weather disaster. Some residents in inland flood-ravaged areas such as Picton and Camden in NSW, and Tasmania, won't have flood insurance – or may not be covered if it's not deemed to be a flood.
Meanwhile new housing continues to be built in risky areas, when we haven't even figured out what to do, as a society, about those who are living in existing dwellings that are at high risk.
Politicians who should know better have been grandstanding about what insurers should do for those hit by the storm. But when the risk is high, so is the insurance premium. A low-lying house in a floodzone will pay more for insurance than a highset one; and good luck finding the elusive policy that covers "actions of the sea", especially as sea levels are known to be rising. Insurers are not charities and will not cover events that are expected to happen with costly frequency.
Governments, by contrast, are supposed to represent all of society.
So who will protect the people hurt by this disaster, and others like them, as the sea level rises and extreme weather damages more homes and businesses? Is it even possible to protect them? And if so, who should pay?
These are all questions we should be asking. In fact, they've been asked many, many times before. By the Productivity Commission (twice, in 2012 and 2014), the Treasury, the Australian Government Actuary, industry groups, cross-industry alliances, a national inquiry into disaster insurance, various discussion papers, and more – ourselves at The Climate Institute included. It is not as if we don't know what needs to be done.
It is no wonder that the Productivity Commission dryly mentioned that "groundhog day anecdotes abound" in this area.
"Current government natural disaster funding arrangements are not efficient, equitable or sustainable," the Commission wrote. "They are prone to cost shifting, ad hoc responses and short-term political opportunism."
The government has not responded to that review, by the way; nor has it responded to the Northern Australia Insurance Premiums Taskforce, which attempts to address skyrocketing premiums arising from high cyclone damage payouts. Few if any recommendations from the earlier reviews have been comprehensively implemented.
When asked about uninsured losses, the NSW minister for Emergency Services, David Elliott, told the ABC: "This is why we tell people, when you buy property, when you take out an insurance policy, make sure you know what your insurance policy covers. It's not the role of the government."
Mr Elliott is partly right. Of course, government should not be underwriting risks taken by private individuals for their own benefit. Yet many people don't understand the risks they're taking, let alone who is expected to foot the bill.
I wonder if Mr Evans has tried to find all the available hazard information on a NSW residential property lately? Problems with hazard information are well-documented. In some parts of the state, you still can't get even historical flood records from your local council.
Meanwhile, we have seen a boom in residential construction in Australia in the past few years. Yet in 2012, the state governments of NSW, Queensland and Victoria "all took action to weaken or reverse" planning laws that would reduce new developments in at risk areas. Hence we have local governments approving developments they believe are too risky, and legal battles over sea adaptation measures. In some cases this is being addressed now, but tentatively and slowly, and still at the state level.
Perhaps the most egregious example of policy amnesia is the "National Climate Resilience and Adaptation Strategy", published in a rush in December 2015 as the government highlighted its international credentials during the Paris climate talks.
It's not so much a "strategy" as a mishmash of unfounded assertions, pretty graphics, excuses and sheepish acknowledgements. On the topic of "built environment", it refers to another "strategy" on critical infrastructure, a vague and broad document which makes zero mention of climate change or even weather. It also references the "Enhancing Disaster Resilience in the Built Environment: Roadmap", which can only be found buried in the minutes of a WA Local Government Association from 2012. Which is a shame, because its recommendations are very good and thorough.
Meanwhile, coastal councils are crying out for a nationally coordinated approach to coastal planning. They have made clear in numerous submissions over the years that fear of litigation and costly challenges is the number one factor preventing them from taking a prudent approach to development in coastal areas and flood zones. That's why the Gold Coast council approved a big development on a former cow paddock in the Carrara flood plains – but specified that it must include a flood-proof helipad, two boat skippers, warning lights and enough non-perishable food and water to suffice for three days of stranding. The council said it had no choice, citing the cost of appealing.
State and federal politicians, despite their recent statements, can and should be doing more to prepare Australians for the impacts of climate change – ensuring information is available, clarifying roles and responsibilities, and, above all, preparing us for the future, rather than responding in piecemeal, unpredictable and expensive ways.
It will be difficult, but a lot of groundwork has been laid already by scientists, lawyers, engineers and even policy-makers. If this is not tackled, more and more of us will find ourselves in unexpectedly dangerous and costly predicaments.
Kate Mackenzie is The Climate Institute's investment and governance policy manager. She is also the author of its recently released There goes the neighbourhood: Climate change, Australian property and the financial sector report.
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